BREAKING: Barclays Revealed Libor Scandal Four Years Ago

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By Jonathan Weil

How's this for prescient?

Check out the first couple of paragraphs of a Bloomberg News article from May 29, 2008, under the headline, "Libor Banks Misstated Rates, Bond at Barclays Says." (Yes, the article ran more than four years before Barclays's $453 million settlement last month with U.S. and U.K. authorities for manipulating Libor.) The story begins:

Banks routinely misstated borrowing costs to the British Bankers' Association to avoid the perception they faced difficulty raising funds as credit markets seized up, said Tim Bond, a strategist at Barclays Capital.

"The rates the banks were posting to the BBA became a little bit divorced from reality," Bond, head of asset-allocation research in London, said in a Bloomberg Television interview. "We had one week in September where our treasurer, who takes his responsibilities pretty seriously, said: 'right, I've had enough of this, I'm going to quote the right rates.' All we got for our pains was a series of media articles saying that we were having difficulty financing."

Later, the article says:

Barclays Plc, the U.K.'s third-biggest bank and parent of Barclays Capital, quoted three-month dollar rates to the BBA that averaged 7 basis points more than those of their peers in the first week of September. Barclays dropped 9.1 percent on the London Stock Exchange that week, compared with the 5.5 percent decline in the 59-member Bloomberg Europe Banks and Financial Services Index.

"Other banks tried to push their head above the parapet on occasions as well, but with every attempt you were met with a lot of rumor and innuendo,'' Bond said in the interview. ``It wasn't a very easy environment.''

Bond's TV appearance came the same day as a front-page Wall Street Journal article that showed several large banks, including Citigroup Inc. and JPMorgan Chase & Co., had been "reporting significantly lower borrowing costs" for Libor "than what another market measure suggests they should be." (The market measure the Journal cited was the cost for credit-default insurance.) Both articles came up during discussion at a July 4 hearing where former Barclays Chief Executive Officer Robert Diamond testified to a U.K. parliamentary panel.

"So in May 2008 you have a strategist in your own organization who is stating that these borrowing costs have been misstated," said Jesse Norman, a member of the Treasury Select Committee, after reading aloud from the Bloomberg article. "How could it be possible that you couldn't have been aware of it at that time and indeed actively under some internal obligation to launch an investigation?"

Diamond dodged the question. "This isn't just Barclays, and you keep coming back to Barclays," he said. To which Norman replied: "Well, that's the institution for which you were responsible."

Later Diamond said to Norman: "I'm not excusing that behavior. But I think it's also appropriate for the committee to step back and say that it was a financial crisis and that there are broader industry implications. And all I'm saying is look at the behavior of Barclays in the context of what we did about it once we found out."

It doesn't look good. As Bloomberg View noted in an editorial today, Diamond claimed at the hearing that he learned only last month about e-mails showing that his bank had made false submissions on interest rates used to set Libor. Hmm.

(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)

Read more breaking commentary from other Bloomberg View columnists and editors at the Ticker.

-0- Jul/06/2012 22:05 GMT